Slightly Better (Dead Cat Bounce?)
Futures are up a tad at the moment in pre-market
activity. At 9:00 a.m.
CST March non-manufacturing ISM will be released, expected at 57 vs. February’s
58.7 reading. This is really a non-number and should have little impact unless
it is out of the ballpark in either direction.
The important thing to watch for today will be follow through. Follow through
(in any direction) has been lacking for quite some time as the major indices
have been more or less confined to channel or range trading. Volatility should
give us a clue here as today’s higher opening should bring out sellers of
volatility. If volatility can hold up, or even move higher as the market moves
higher, it will be a sign that the sell-off will likely resume. This is the
scenario I expect. Should volatility get ripped apart and challenge yesterdays
lows, the sell-off might be over.
I would not be surprised to see the fragmentation between the DJI and Nasdaq
resurface (DJI bid, Nasdaq offered) and lead to a fragmentation in the
volatility indices (VXN, QQV bid, VIX offered). Monitor this situation as well,
especially if you are the daytrader type. It can give you good clues as to what
to be long when you want to be long, and what to be short when you want to be
short.
Stocks were mixed in Europe, with the FTSE dropping slightly lower to 5246, and
the DAX down .1% to 5305. In Asia, the Nikkei was up 1.8% to 11,400, and the
Hang Seng was down 0.5% to 10,834.
Volatility
Volatility, although a bit fragmented, had a big up day yesterday, particularly
in the tech-related indices (VXN, QQV). The VIX was up .63 at 20.68. The VXN was
up a whopping 2.87 at 39.32, and the QQV had a huge day, gaining 3.22 points to
close at 35.19, a 10-day high. All are now above their respective 10-day moving
averages, which have dropped a lot with the recent carnage in volatility. As I
mentioned above, look to the implied volatility indices for clues as to whether
this sell-off will resume. If it holds or moves higher on this morning’s higher
opening, there is a strong chance that we are seeing the "dead cat
bounce" and selling will resume later.
Trade Updates (4/02/02)
(
BAC |
Quote |
Chart |
News |
PowerRating) — We were unable to enter the Bank of America May/August 65 Put
Spread (sell the May 65 put and buy the August 65 put for a $1.50
debit). We will reenter this spread today, as it is very close.
(
RTH |
Quote |
Chart |
News |
PowerRating) — We were unable to buy the July 85/95 put spread at $2.50 per the
intraday Alert. It is close, and we will reenter today.
(
ORCL |
Quote |
Chart |
News |
PowerRating) — We were unable to buy further ORCL June 12.5 calls at the $1.25
level. We will reenter tomorrow.
Working Orders (Old Recommendations)
BAC — Buy the August/May 65 put calendar spread (buy the August 65 puts and
sell the May 65 puts) for $1.50 or better (50%).
ORCL — Traders may begin making scale-down purchases of the June 12.5 calls,
looking to slowly build a long position at an average price of $1.25 or less.
New Actions (New Recommendations)
RTH (Retail HOLDRs) — Buy the July 85/95 put spread (buy the July 95 puts, sell
the July 85 puts) at $2.50 or less, 50% allocation.
Rolls/Adjustments
Chiron
(
CHIR |
Quote |
Chart |
News |
PowerRating) — Investors long the July 50 calls at $3.30 (50%)
may sell the July 60 calls against their positions at $1.00. This will roll us
into the July 50/60 call spread at $2.30.
Disney
(
DIS |
Quote |
Chart |
News |
PowerRating) — The Disney roll we have been recommending has moved
away as the stock has declined. Investors long the April 22.5/25 reverse collar
at a $1.15 credit (75%) may hold if they are willing to take delivery of the
stock at $21.35 (22.50 short put strike – 1.15 credit). If not, look to
liquidate the position on the next bounce.
On The Horizon…
We are looking at short positions in the home building sector and adding to
longs in the energy sector.
Recap of open trades
Long-term
Reverse Collars
DIS — April 25/22.5 reverse collar (long the
April 25 calls, short the April 22.5 puts) at a $1.15 credit (75%).
Buy-writes
(
HAL |
Quote |
Chart |
News |
PowerRating) — Long the July 20 buy-write at $15.00
(50%).
HAL — Long the July 17.5 buy-write at $14.50
(50%).
Proxy buy-writes
None.
Complex Strategies
None.
Short-term
Call Positions
(
APC |
Quote |
Chart |
News |
PowerRating) — Long the May 60 calls at $1.75
(50%).
(
CHIR |
Quote |
Chart |
News |
PowerRating) — Long the July 50 calls at $3.30
(50%).
(
CPN |
Quote |
Chart |
News |
PowerRating) — Long the May 15 calls at $.40 (50%).
(
MLNM |
Quote |
Chart |
News |
PowerRating) — Long the May 25 calls at $2.40
(50%).
(
ORCL |
Quote |
Chart |
News |
PowerRating) — Long the June 12.5 calls at $1.35
(20%).
Call Spread Positions
None.
Put Positions
(
AZO |
Quote |
Chart |
News |
PowerRating) — Long the April 60 puts at an
effective cost of $2.125 (50%).
(
BAC |
Quote |
Chart |
News |
PowerRating) — Long the August 65 puts at $3.00
(25%) — part of a spread "leg" to be completed later.
(
SMH |
Quote |
Chart |
News |
PowerRating) — Long the April 45 puts at an average
price of $1.76 (30%).
Spread Positions
None.
Stops
None.
|
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- Options trading involves substantial risk and
is not suitable for all Investors. - Also note that spread strategies involve
multiple commissions and are not risk-free. Most spreads must be done in a
margin account.
- Because of the importance of tax
considerations to all options transactions, the investor considering options
should consult with a tax advisor as to how taxes may affect the outcome of
contemplated options transactions.
- Supporting documentation for claims,
comparisons, recommendations, statistics or other technical data will be
furnished upon request. One or more of the contributors to these
commentaries may have a position in one or more of the securities mentioned.
- It is important to note that the options
strategies discussed herein are not suitable to all investors. Options are
complex investment tools and involve substantial risk. Moreover spreading
strategies do not eliminate risk and involve multiple commissions.
- Note: All individuals must have read the ODD
carefully before trading options. To obtain the document, click on the OCC
link: https://www.theocc.com/publications/risks/riskchap1.jsp